Which of the following statements is CORRECT?
A) If you have a series of cash flows,each of which is positive,you can solve for I,where the solution value of I causes the PV of the cash flows will be more than the cash flow at Time 0.
B) If you have a series of cash flows,and CF0 is negative but each of the following CFs is positive,you can solve for I,but only if the sum of the undiscounted cash flows exceeds the cost.
C) To solve for I,one must identify the value of I that causes the PV of the positive CFs to equal the absolute value of the PV of the negative CFs.This is,essentially,a trial-and-error procedure that is easy with a computer or financial calculator but quite difficult otherwise.
D) If you solve for I and get a negative number,then you must have made a mistake.
E) If CF0 is positive and all the other CFs are negative,then you cannot solve for I.

Question

Quizplus · Accepted Answer

The statement in option C is correct as it describes the process of solving for I using trial and error, which can be easily done with a financial calculator or computer. Option A is incorrect because in order for the PV of cash flows to be more than CF at Time 0, some of the cash flows must be negative. Option B is incorrect because the sum of undiscounted cash flows is not relevant when solving for I. Option D is incorrect because I can be negative, depending on the nature of the cash flows. Option E is incorrect because it is possible to solve for I even when CF0 is positive and all other CFs are negative.

Which of the Following Statements Is CORRECT